(Corrects gender for Brooke Coleman in paragraphs 22 and 23 to "he" from "she")

By Jarrett Renshaw and Chris Prentice

NEW YORK, April 4 (Reuters) - The U.S. Environmental Protection Agency has approved the request of 25 small refineries to be exempted from the nation's biofuels laws, an agency source said on Wednesday, marking a big increase from previous years and triggering an outcry from farm groups worried the move will hurt ethanol demand.

The expansion of the waiver program represents the Trump administration's latest clash with the powerful corn lobby, as it seeks to help merchant refiners that claim the U.S. Renewable Fuel Standard costs them hundreds of millions of dollars a year.

The decade-old law requires refiners to blend increasing amounts of biofuels like corn-based ethanol into the nation's fuel each year, or purchase blending credits from other companies - a policy intended to provide a boost to Midwestern corn growers, reduce pollution and cut fuel imports.

In the past, the EPA has issued between six and eight waivers from the RFS per year to small refining operations of less than 75,000 barrels per day that can demonstrate they are struggling financially to comply, according to a former official familiar with the waiver program under past administrations.

This time that number has ballooned.

"While the applications continue to come in, EPA has granted roughly 25 so far," said the EPA source, who asked not to be named discussing the waivers. The source said the waivers cover the refineries' obligations for 2017, which would come due this year.

A spokeswoman for the EPA, Liz Bowman, said nothing had changed under the administration of President Donald Trump. "The criteria used to grant waivers has not changed since previous administrations,” she said.

Reuters had reported on Tuesday that Andeavor, one of the nation's biggest refining companies, recently won exemptions from the EPA covering its 2016 obligations at three of its smallest refineries - the first evidence of the agency providing relief to a large and profitable company.

Biofuel groups blasted the EPA for apparently expanding the use of the hardship waivers, with two of them calling on the agency to immediately halt issuing new exemptions until the public gets a chance to review the agency's actions.

EPA does not disclose the waiver recipients, arguing the information is business confidential.

"EPA appears to be operating under the cover of night in a secretive process where the agency acts as judge, jury, and executioner to effectively reduce the overall demand for biofuels in this country absent any public discourse," said Emily Skor, CEO of biofuel producer Growth Energy.

The National Farmers Union said it was particularly incensed by the waiver Andeavor had acquired.

"Hardship waivers were not designed for large corporations who net billions in profit each year. The National Farmers Union (NFU) is deeply disturbed by these reports, and requests that EPA cease granting these waivers," it said in a letter to EPA Administrator Scott Pruitt.

The news of the number of waivers EPA has granted drove down prices for biofuel blending credits to their lowest levels since 2015, on fears that refiners that typically have to buy them would sell them instead, traders said.

MORE APPLICATIONS

Refiners have applied for the waivers in larger numbers after a federal appeals court ruling last year that said the EPA must expand the guidelines for approving them.

They have also been encouraged to apply by the Trump administration's recent efforts to broker a deal between the oil and corn industries to reduce the costs of the RFS, industry sources said. Those talks have not yielded a deal.

Refiners granted exemptions win in two ways: They no longer have to blend biofuels or buy credits to comply with the law, and they can sell any credits they had previously purchased to use for compliance.

Prices of U.S. renewable fuel (D6) credits plunged to as low as 29 cents each on Wednesday, the first time they fell below 30 cents since September 2015, according to the Oil Price Information Service.

U.S. Senator Chuck Grassley, a Republican who represents Iowa - the nation’s largest corn-growing state - and who backs the biofuels industry, said late on Tuesday that the expansion of the waiver program raised legal questions.

Giving Andeavor “a free pass when other companies are required to follow the law of the land isn’t just unfair, it may be illegal,” Grassley told Reuters late Tuesday.

Brooke Coleman, head of the Advanced Biofuels Business Council, said he was concerned EPA's Pruitt was using the waivers to gut a program he dislikes.

"Mr. Pruitt is eviscerating a law the president supports – in complete secrecy," he said, pointing out Trump had campaigned on a promise to support the RFS.